Business context and reporting period
This is NextEra Energy Partners, LP’s (NEP) Form 10-Q for the quarter ended June 30, 2014; the filing is not titled XPLR Infrastructure, LP. NEP was formed in March 2014 and had no activities beyond formation before its July 1, 2014 initial public offering (IPO). Accordingly, the operating results below are for the accounting predecessor—the renewable projects acquired by NEP—and do not represent a standalone public-company operating history.
NEP’s initial portfolio comprised ten contracted wind and solar projects totaling approximately 989.6 MW. Nine were operating at June 30; Bluewater entered service in July.
Financial performance and position
Predecessor results, unaudited; dollar amounts in millions except generation and percentages.
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Revenue | $86.7 | $34.5 | $146.2 | $66.4 |
| Operating income | $50.4 | $18.8 | $80.5 | $33.5 |
| Net income | $22.2 | $7.7 | $27.5 | $7.3 |
| Operating margin | 58.1% | 54.7% | 55.0% | 50.5% |
| Net margin | 25.6% | 22.3% | 18.8% | 11.0% |
| Generation | 698 GWh | 422 GWh | 1,346 GWh | 873 GWh |
Operating revenue rose approximately 152% in Q2 and 120% in the first half, mainly as Summerhaven and Genesis Units 1 and 2 entered service. Higher operating costs and depreciation accompanied the added capacity. Interest expense increased to $23.6 million for Q2 from $9.8 million and to $42.4 million for the first half from $19.9 million, primarily reflecting new project debt and reduced capitalized interest. The prior-year periods included a $4.8 million gain on settlement of acquisition-related contingent consideration; there was no such gain in 2014.
First-half operating cash flow was $84.6 million, versus $42.5 million. Investing cash outflow was $127.9 million versus $152.8 million; financing cash inflow was $122.8 million versus $102.0 million. Cash and cash equivalents at June 30 were $107.1 million. Reported liquidity was $143.3 million, including available Genesis letter-of-credit capacity net of outstanding letters; it excludes $346.4 million of restricted cash, which included CITC proceeds designated for debt repayment.
At June 30, the predecessor reported $2.235 billion of debt, including $396.0 million of current maturities, against total assets of $2.876 billion. Debt fair value was estimated at $2.391 billion. Project-financing covenants were reported in compliance, with debt-service coverage at or above the required 1.20:1.00.
Material changes and post-period transactions
- Q2 revenue growth and increased generation primarily reflect the commencement of operations at Summerhaven and Genesis units; Bluewater commenced operations after quarter-end.
- Property, plant and equipment rose while construction work in progress declined, chiefly because Genesis Unit 2 entered service.
- During Q2, subsidiaries issued approximately $280 million of 5.60% secured Genesis notes due 2038 and borrowed approximately C$170 million (about $157 million) for Bluewater.
- On July 1, after the reporting date, NEP completed its IPO of 18,687,500 common units at $25 each, receiving approximately $438.3 million net. It used approximately $288.3 million to buy NEP OpCo units from an NEE affiliate and $150 million to buy units from NEP OpCo. NEP then held a 20.1% limited partner interest in NEP OpCo.
- Also on July 1, NEP OpCo and subsidiaries entered a $250 million secured revolving credit facility, expiring in July 2019, with potential incremental commitments up to $1 billion subject to conditions.
Outlook, risks, and contingencies
The filing provides no specific earnings, revenue, or distribution guidance. Management stated that liquidity and operating cash flows were expected to support operating costs, capital expenditures, distributions, and other commitments, while cautioning that cash flows and distributions can vary with renewable resources, seasonality, maintenance, and other factors. Management estimated additional annual costs of approximately $4 million from being publicly traded and approximately $5.8 million for the management and credit-support fees; these would affect periods after the IPO. Estimated remaining-2014 capital expenditures were $28 million, primarily for Bluewater, and $2 million for 2015.
Key risks include wind and solar variability, equipment performance, project concentration, reliance on long-term offtake contracts and a limited number of counterparties, debt and distribution restrictions, and dependence on NEE for management, credit support, and potential acquisitions. The filing disclosed wind turbines representing approximately 167 MW at NEP projects that were not producing at their manufacturers’ original power curves; restoration to guaranteed levels was not expected for approximately 60 MW, though some improvement was anticipated. Genesis was expected to represent approximately 40%–45% of portfolio EBITDA for the twelve months ending June 30, 2015. Ontario domestic-content requirements, regulatory and incentive changes, currency movements, transmission constraints, and the return of funds held by NEE affiliates were also identified as risks.
Commitments included $3.58 billion of contractual obligations, including debt with interest, asset-retirement activities, and land leases. Minimum land-use payments totaled $134.8 million. Bluewater had $10.1 million of remaining commitments under disclosed EPC contracts. The filing reported no material uncertain tax positions.
Important facts for investors to verify
- Confirm the distinction between NEP’s limited pre-IPO activity and the predecessor financial statements; predecessor results may not reflect standalone public-company costs or NEP’s 20.1% economic interest in NEP OpCo.
- Review the IPO proceeds deployment, post-IPO ownership structure, revolving-credit terms, and restrictions on distributions and use of cash.
- Assess actual generation and remediation outcomes for underperforming turbines, Bluewater’s operational ramp-up, and Genesis concentration.
- Monitor restricted CITC cash and required debt repayments, project debt maturities and coverage tests, and liquidity available after restrictions.
- Review NEE-related management, credit-support, and cash-sweep arrangements, including the timing and conditions for return of funds held by NEE affiliates.